Very few brands can say they have done well last year because with the virus still rampant and resurging across many countries, it would count a blessing if they could minimise the impact to the smallest. Across the board, luxury brands and conglomerates such as Kering, LVMH and Chanel are registering poor sales records while independent brands are finding it difficult to simply operate. In a report by Bain & Company, it is expected that the luxury sector will only see a recovery to 2019 levels by the end of 2022 or early 2023. But as vaccine programmes are gradually rolled out and more approvals coming along, perhaps the timeline projected can be shortened and the road to recovery can be kickstarted.
Unlike the rest of the players in the industry, Prada has beaten the odds to achieve “a full recovery to 2019 levels” for the month of December. Despite having to close multiple stores accounting to 9% of its entire network, the Italian fashion house “saw a progressive recovery in sales.” While Prada did have a dip in its retail channel for its second half — an average of 6% drop at constant exchange rates — the company reported a positive recovery in all geographical areas with Asia-Pacific region having the largest growth; China alone saw a 52% growth.
“Values will change and how products will be distributed will also change, but the market is growing not declining. I think the strategy we are pursuing — to place the group in the high-end, luxury bracket — will allow us to achieve the contribution margins [we want].” – Patrizio Bertelli, Prada Chief Executive Officer
It is not surprising that sales in China managed to scale up while other countries within the Asia-Pacific region such as Japan and South Korea are not doing as well due to recurring waves of the virus outbreak. China was the first country to be stricken with Covid-19 and a majority of its citizens were placed under quarantine which drastically helped to prevent the spread of the virus. The measures taken by the state government were often criticised as draconian by the media but it has managed to bring infection levels down significantly, thus, facilitating the resumption of general economic activities.
A shift in purchasing habits within China contributed to this increase in sales as global tourism comes to a halt. Since the Chinese citizens are not able to travel, they redirected this sum that would have used to spend overseas to the local market, driving sales to various brands including Prada. The burgeoning middle class and the rise of Gen Z spenders accelerate the figures further and they are poised to be the market driver in the future.
Besides looking at how demands for luxury goods have grown, it is also noteworthy to look at the supply-side of the business. In 2020, Prada has kept itself relevant through various initiatives such as the Prada x Adidas collection, its SS’21 collection co-created by Muccia Prada and Raf Simons, and its reintroduction of the Linea Rossa line. The company has reigned in greater controls over its wholesale business so keep the brand’s prestige and its allure factors. Other business aspects of the company were also looked into to ensure that it is able to cut losses and compared to 2019 where its financial position was in the reds, “positive margins in the second half of the year allowed the group to reach a positive operating profit for the full 2020 year,” as mentioned in an article by WWD, “the company attributed the margin recovery to a careful management of quality and product mix.”
We are just starting the new year so it remains to be seen how the industry will unfold itself but we are optimistic that everything will be okay after a rather tumultuous year. The only way is up from now onwards.
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